Chen v Lin [2016] NZCA 113 (11 April 2016)

Last Updated: 27 April 2016

IN THE COURT OF APPEAL OF NEW ZEALAND
CA334/2015 [2016] NZCA 113
BETWEEN	YANG CHEN Appellant
AND	JINZHU LIN Respondent

Hearing:	15 and 18 February 2016
Court:	Harrison, Fogarty and Toogood JJ
Counsel:	R M Hesketh (on February 15) and R Reed (on February 18) for Appellant ASR Kashyap for Respondent
Judgment:	11 April 2016 at 11.30 am

JUDGMENT OF THE COURT

1. The appeal is allowed.
2. The Chinese judgment is to be enforced to its full value of RMB 28,567,202.23.

100. The appellant is awarded interest on the sum of RMB 20 million under s 87 of the Judicature Act, from the date of the High Court judgment (23 July 2014).

4. The respondent must pay the appellant costs for a standard appeal on a band A basis together with the usual disbursements.

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REASONS OF THE COURT

(Given by Fogarty J)

Introduction — the application

[1] The respondent, Jinzhu Lin, is indebted to the appellant, Yang Chen. Mr Chen has the benefit of a judgment in China for RMB 28,567,202.23. This sum splits between the principal of RMB 20 million and the balance being interest. The interest component of RMB 8,567,202.23 in turn splits between cumulative interest of RMB 6,590,155.56 and an extra 30 per cent of that sum, being RMB 1,977,046.67.
[2] In common with many other jurisdictions across the world, the New Zealand courts will recognise and enforce foreign judgments subject to limited public policy exceptions. On 23 July 2014 the High Court (Associate Judge Doogue) entered judgment for Mr Chen as to the capital amount of the debt, the sum of RMB 20 million.^[1] The Associate Judge had omitted, by mistake, to consider and include the interest component of the debt. He declined twice to recall the judgment as it had been sealed.^[2] He acknowledged, however, in his reasoning that his failure to award interest was, in his opinion, a mistake or error. This appeal seeks to recover the total award of interest.
[3] The judgment sought from the Court of Appeal is:

• (a) An order enforcing the Chinese judgment in New Zealand in its entirety. That is including both the principal sum of RMB 20 million and interest of RMB 8,567,202.23 (from 14 May 2009 to 19 June 2014).
• (b) An order for interest on the judgment debt, at a rate of interest appropriate under s 87 of the Judicature Act 1908 from the date of the High Court’s judgment to the date of repayment.
• (c) An order for costs regarding this application and costs on appeal.

The Chinese judgments

[4] On 11 March 2014, Mr Chen initiated proceedings in the High Court, seeking summary judgment against Ms Lin. The proceedings were to enforce a judgment from the Fuzhou Intermediate People’s Court, in China, that awarded Mr Chen RMB 28,567,202.23. That Chinese judgment was subsequently upheld on appeal by the Fujian Higher People’s Court and then the Supreme Court of China.

The translations of the Chinese judgments

[5] A translated and sealed copy of an enforcement order from the Fuqing Municipal People’s Court was annexed to an affidavit of Mr Chen’s brother, Mr Chen Long. The translation of the Chinese court enforcement order indicated that the principal amount awarded to Mr Chen in the judgment was RMB 20 million. The order also included a separate sum stating that interest to the value of RMB 8,567,202.23 has accrued on the principal. The order, therefore, concluded that the “total amount enforced” is RMB 28,567,202.23.
[6] We now have two translated copies of the enforcement order. Some of the wording is different but materially both translations consistently record that the principal amount of money to be refunded is RMB 20 million. The amount of interest is similarly recorded separately as RMB 8,567,202.23. Both copies conclude that the “total amount enforced” is RMB 28,567,202.23.
[7] The interest accrual period is from 14 May 2009 to 19 June 2014. The interest rate is described as: interest rate published by the People’s Bank of China (PBOC) for overdue loans of the same kind and for the same period of time. There are then eight sequential calculations of interest in consecutive periods starting from 14 May 2009 and through to 19 June 2014 at “base” interest rates per period (also translated as “slabs”). The interest rates per annum range from 5.94 to 7.05 per cent. The base rate interest so calculated totals RMB 6,590,155.56.
[8] After the last period calculation, there is then a line in the translation:

After adding extra 30%, the total amount of interest is 8,567,202.23.

[9] Neither translation explains why there is an extra 30 per cent. However, both counsel have drawn this Court’s attention to art 299 of the Civil Procedure Law of the People’s Republic of China which provides:

If a person to be enforced fails to fulfil his obligations of paying money within the time limit specified by a judgment, ruling or any other legal documents, he shall pay a multiplied interest for the debt based on the default time. If the person subject to the enforcement fails to fulfil his other obligations within the time limit specified by a judgment, ruling, or any other legal documents, he shall pay a surcharge for the deferred performance.

The submissions

[10] Ms Reed and Mr Hesketh, for Mr Chen, submit that the Associate Judge’s decision was incorrect insofar as it omitted the interest component of the Chinese judgment. Mr Chen, therefore, seeks to have the Chinese judgment enforced to the total amount ordered in the original decision, being RMB 28,567,202.23.
[11] Mr Chen seeks interest at the Judicature Act’s prescribed rate of 7.5 per cent on the RMB 20 million only, running from 23 July 2014, the date of the first decision, until full repayment of the judgment debt. Mr Chen only applies for interest on the principle sum of RMB 20 million. The reason interest is not sought on the total sum of the award is that s 87(1) of the Judicature Act has the effect of proscribing interest on the interest component of the Chinese judgment.
[12] Ms Lin opposes the appeal and submits that the following issues preclude the appeal:

• (a) The interest component of the Chinese judgment is unenforceable because of uncertainty.
• (b) The Chinese judgment is unenforceable in New Zealand because of issues relating to public policy.
• (c) Interest should not be awarded on the principal sum in accordance with s 87 of the Judicature Act.

[13] Mr Kashyap’s opposition to Mr Chen’s claim for interest is that it should not be awarded because Mr Chen is responsible for unnecessarily delaying this appeal through the unsuccessful recall and slip rule applications.

Whether the interest component of the Chinese judgment is unenforceable because of uncertainty

[14] As to the first issue, Mr Kashyap seeks to strike out these proceedings on the basis that alleged errors in the Chinese court enforcement certificate mean the value of Chinese judgment is uncertain, and therefore not eligible for enforcement in New Zealand.^[3] These errors are said to arise from a misapplication of the actual base interest rates, periodically set by the PBOC, when accruing the interest. Mr Kashyap would seek to have the certificate reviewed by the Chinese courts, after which the subsequent documents would need to be verified by appropriate experts.
[15] Mr Kashyap has not been able to obtain appropriate expert advice from China to substantiate the documents on which Mr Chen relies, but submits that counsel had discovered that the base interest rate set out for the various periods on the certificate differ from the actual base interest rates published by the PBOC. He argued the actual base interest rates published by PBOC are lower than those set out in the certificate. Given that the certificate fails to explain the additional component of RMB 8,567,202.23 and likely stipulates incorrect rates, Mr Kashyap is of the view the certificate should not be relied upon to determine quantum enforced in New Zealand. Mr Chen’s counsel challenged this argument by a competing analysis relying on a website, www.globalrates.com. Mr Chen argued that the website does not allow users to search for or review historical interest rates published by PBOC for any specific periods. The submission includes a printout from PBOC’s website showing that the interest rates actually published by PBOC are the same as the interest rates used by the Court Enforcement Order. Mr Chen, therefore, submits that the Chinese decision contains no error.

Whether the Chinese judgment is unenforceable in New Zealand because of issues relating to public policy

[16] For the second issue, Mr Kashyap submits that the 30 per cent added, probably under art 299 of the Chinese Civil Procedure Rules, is a penalty rate which should not be enforceable in New Zealand because it is contrary to New Zealand policy. Mr Kashyap noted that there is no equivalent New Zealand law which awarded penalty interest against a judgment debt that is not satisfied within a specific time frame. He submits that the Chinese court has effectively multiplied the overdue interest rate by 200 per cent for a period exceeding five years. He claims this is oppressive and contrary to New Zealand law and should therefore not be enforced.
[17] For Mr Chen, Mr Hesketh submits that the 30 per cent increase in interest was in fact the overdue loan rate and that the judgment was without a penalty element. It does not, therefore, fall into an exception to the basic principle of finality, which applies in cases where the enforcement of a judgment is contrary to local public policy.^[4] He also touched on the fact that the threshold for the public policy exception is high, and noted the decision of this Court in Reeves v One World Challenge LLC, where O’Regan J described the exception as only being available in cases where enforcement of a foreign judgment would be repugnant.^[5]

Analysis

[18] Private international law favours the enforceability of foreign judgments from other civilised nations.^[6] Those judgments are recognised and enforced based on the principle of comity, which controls analysis of both the substantive law of the jurisdiction in which the judgment was obtained, and the merits of the judgment. The substantive rights of the parties are governed by the law of the foreign country granting the judgment, whereas procedural matters are governed exclusively by the law of the enforcing jurisdiction.^[7]
[19] If a foreign judgment meets the criteria of enforceability, then its enforcement can only be resisted on a very limited number of grounds; one of those exceptions is that judgments will not be registered in New Zealand if the content of the judgment is contrary to policy.^[8]
[20] We turn to consider the first issue as to whether the Chinese judgment needs to be retested because of the difficulties in applying approved rates of interest. We think that Ms Reed is likely to be correct in her analysis that there is no error in the Chinese calculations. Ms Lin’s calculations of the interest rates appear to be based incorrectly on the interest rates for debts owing between one to three years, instead the overdue loan interest rate published by PBOC for debts owing over five years. But, more importantly, as explained in [18], the enforcement jurisdiction does not critique the application of substantive law by the foreign court. The calculation of the interest cannot be challenged.
[21] For the second issue, relating to the question of penalty rates and public policy, we follow this Court’s decision in Reeves v One World Challenge LLC, which takes the traditional view to the public policy exception.^[9] In that case, this Court stated, citing with approval a decision from the Supreme Court of Canada:^[10]

[50] The test recently applied by the majority of the Supreme Court of Canada in Beals v Saldanha [2003] 3 SCR 416 was that enforcement would “shock the conscience of the reasonable Canadian” (at para [77]) or would be “contrary to our view of basic morality” (at para [71]). At para [75], Major J, on behalf of the majority, made the following observation:

“[75] The use of the defence of public policy to challenge the enforcement of a foreign judgment involves impeachment of that judgment by condemning the foreign law on which the judgment is based. It is not a remedy to be used lightly. The expansion of this defence to include perceived injustices that do not offend our sense of morality is unwarranted. The defence of public policy should continue to have a narrow application.”

[51] We agree with that observation and respectfully adopt it. We do not think the judgment of this Court in Amaltal lowered the threshold in the manner contended by Mr Spring.

[22] Thus understood, the public policy exception has no application in this case. It is plain that the Chinese courts have a deliberate and considered policy of increasing the interest rates where judgment debts remain overdue over a period of time. That is a matter of substantive law. Whether the extra 30 per cent is a penalty rate or not, the policy does not shock the conscience of the reasonable New Zealander. Rather, it is simply a different policy as to interest, where the debtor is in default.
[23] For those reasons, there is no argument available to Mr Chen against remedying the judgment of the High Court by adding the interest awarded by the Chinese courts in the sum of RMB 8,567,202.23.
[24] As to the third issue, relating to interest under the Judicature Act, we agree that once judgment has been entered in New Zealand, thereafter as a New Zealand judgment, the substantive law on interest in New Zealand applies to it.

Result

[25] The appeal is allowed.
[26] We order the Chinese judgment is to be enforced to its full value of RMB 28,567,202.23.
[27] Mr Chen is awarded interest on the sum of RMB 20 million under s 87 of the Judicature Act, from the date of the High Court judgment (23 July 2014).
[28] Ms Lin is ordered to pay costs for a standard appeal on a band A basis together with the usual disbursements.

Solicitors:
Prestige Lawyers Limited, Auckland for Appellant
Kashyap Law, Auckland for Respondent

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^[1] Chen v Lin [2014] NZHC 1727.

^[2] Chen v Lin [2014] NZHC 3210 and Chen v Lin [2015] NZHC 998.

^[3] Pickett (t/a Pickett Redding) v Pulman (2004) 17 PRNZ 378 (HC) at 117.

^[4] Kemp v Kemp [1996] 2 NZLR 454 (HC).

^[5] Reeves v One World Challenge LLC [2005] NZCA 314; [2006] 2 NZLR 184 (CA) at [67].

^[6] At [59]–[61].

^[7] See British Linen Co v Drummond [1830] EngR 209; (1830) 10 B & C 903, (1830) 109 ER 683; James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (HL); Chaplin v Boys [1971] AC 356 (HL).

^[8] Reeves v One World Challenge LLC, above n 5, at [37]; Kemp v Kemp, above n 4.

^[9] Above n 5.

^[10] At [50]–[51].